Posted on 09/03/2019 9:24:11 AM PDT by SeekAndFind
President Trump and other mercantilists are hoping that his tariffs will drive U.S companies out of China, perhaps even back to the United States. They can keep hoping. It’s not likely to happen.
In a further escalation of his trade war, on August 23 Trump “ordered” U.S companies to leave China, or even return to the United States. This prompted a debate among legal scholars as to whether he even has the authority to do that. Regardless of whether he does or doesn’t, it is unlikely to have any impact.
A proviso is called for here. Some U.S companies are already leaving China - and started to before Trump became president. For one thing, wages in China have been climbing. Since 2008, the average wage in China has tripled. But rather than return to Ohio or Pennsylvania, companies are departing for Vietnam, India, Indonesia and Bangladesh, simply accelerating a move that was underway long before Trump launched his trade war.
Will the corporate exodus pick up? Likely not much. For one thing, companies would have to worry about whether the country they choose to go to would be the next target of protectionist wrath. That’s one of the problems with pursuing a protectionist trade policy - one never knows what country will get a target painted on its back next. Unable to decipher any hint of a long-term plan, U.S companies simply have to function on a day-by-day basis.
India is a good example of a future target. Trump has already removed zero-duty access on $6.3 billion of Indian goods. The Indian government has threatened tariff retaliation.
Vietnam is the most frequent country of choice for U.S companies departing China. Vietnam was already becoming the second Asian home of production for U.S manufactures long ago. Nike moved there in the 1990s, and Cannon copiers in 2012. But while the country is seen as a great place for textile firms, toy makers and footwear manufacturers, and even furniture makers, like most Asian countries it has neither the infrastructure nor the skilled workforce most companies need. Vietnam doesn’t even have the population. It is about a tenth the size of China. If a large number of U.S companies were to move their operations there, the country’s ability to serve as a supplier would be maxed out in a year.
In response to the import taxes on China, some countries have developed supply sources in other Asian countries - with the cooperation of the Beijing government and Chinese companies. Much of the raw materials are still sourced in China; Asian production capacity is simply widened.
While we will no doubt see some companies leave China, few will return to the United States. For one thing, there are simply not enough workers available in a mature economy with a low unemployment rate and a growing proportion of seniors. Domestic labor sources do not exist on the scale that would be needed - one of the reasons the Taiwanese firm Foxconn revamped its investment plans in Wisconsin. U.S consumers would have to build a whole new infrastructure - factories, domestic supplier chains, worker training - a task that would likely take decades. As it stands now, with hour a massive return of production facilities, The United States will soon need a half-million more skilled workers. Deloitte estimates it the country will require a couple of million by 2030.
For another thing, the United States no longer constitutes as big a market as it used to. By 2030, it will be accountable for only 7 percent of sales - less than a third as much as China.
Given comparative growth numbers like this, it is not surprising to see corporate executives salivate at the idea of increasing their Chinese footprint. Trump railed against GM for shifting some production to China - a week after China announced projected 25 tariffs on U.S-made automobiles. GM’s operations in China are actually aimed at the growing China market, where they can expect to sell more cars than in the United States. Last year, the company sold 3.6 million vehicles in China - compared to only 3 million in the United States. Despite the fact that it already faces punitive tariffs against its products from China, even Apple shifted production of the Mac Pro entirely to Shanghai. The United States simply doesn’t have the clout it once did.
The biggest problem the United States faces trying to repatriate companies is the fact that American wages are just too high. The average wage for Americans is about $60,000 per year, many times more than China, India or Vietnam.
If Washington tried to somehow force companies to repatriate their operations, domestic firms won’t be doing much hiring, at least not of American blue-collar workers. They will take a look at the cost of robotics, and realize that it’s a lot more efficient to shift to robots than pay increasingly scarce blue-collar workers $50 an hour. There would be more production in the United States - but no more jobs. That would be a boost for Silicon Valley firms that provide much of the AI software, but would just intensify the wage gap.
Of course, robots are not yet able to meet the needs of some companies, such as footwear makers, which require detailed, intricate work. If they are forced to compete from the Unites States, many of these companies will simply go out of business. Would Nike be able to compete with a European or Asian firm if it was yoked to U.S wage rates? More likely, they would look at Asian growth rates, and move more operations there. Again, the only result would be fewer jobs in the United States, and more in Asia.
Anyone hoping that blue-collar jobs will magically return to the United States can stop hoping for any such thing. Those jobs are gone. There is no point in crying over spilled milk.
“While we will no doubt see some companies leave China, few will return to the United States. For one thing, there are simply not enough workers available in a mature economy with a low unemployment rate and a growing proportion of seniors.”
Some have already returned and when there isn’t a good economy such as after 2008, and the people who weren’t counted anymore for being unemployed, there’s enough people for those jobs.
The writer is confused as to who the mercantilists are and who are the victims. The merchantilists are the Chinese and the rest of our "trading partners". We re the victim. The writer is an idiot.
Such BS. The writer says there are not enough people to do the work of manufacturing!!! The US population in 1960’s was 200 million and the USA produced and exported huge quantities of manufactured goods!!
All the more reason to on shore the factories here and not Mexico and not Gooklandia. Since labor is not an issue.
Think the GOP should use the above as their campaign slogan going forward. Get the RNC on the phone. /sarcasm
Think the GOP should use the above as their campaign slogan going forward. Get the RNC on the phone. /sarcasm
RE: We should have 5, 10, 20, and 40 year plans on how to deal with China, and this should include ensuring US access to all precious metals we need, and a great strengthening of American production capacity.
I’m all for that, however, to be realistic, we are making a huge assumption here -— That Trump’s policies will continue AFTER he is no longer President. All we need is a Democrat or a RINO taking over the Presidency and that could possibly be the end of how long term your plan with China is.
Automation will only be a problem if the factories are not in the USA. If in the USA then they will crate wealth for all AMERICANS.
Funny, that’s the same line Obama and Hillary were using... Yet Under Obama the nation lost over 300,000 manufacturing Jobs in 8 years.
Yet as of July of this year, The US has GAINED over 300,000 Manufacturing Jobs since Trump took office....
So, from 300k lost in 8 years and the powers that be told us to just bend over and take it, those jobs were never coming back.., to 300k gained in 2.5 years, and those same nimrods are telling us jobs are never coming back.
Yes, there is little doubt some jobs will never return, but the idea that Trump hasn’t brought manufacturing back is an abject LIE!
“The biggest problem the United States faces trying to repatriate companies is the fact that American wages are just too high.”
This argument has been shown time and again to be false.. If you have very heavy human involvement in your manufacturing yes but the reality is that most manufacturing is not nearly as labor intensive as it used to be.. So productivity is generally higher in the US, and cost of labor generally is a smaller percentage of the products price than it was decades ago.
Biggest issue is for 40 years we let traitors ship everything overseas, so the supply chains are no longer here... This is the real thing that has to change to majorly change manufacturing.
Exactly none of the aforementioned countries have nuclear missiles aimed at us or are building blue water navies to threaten our trade routes.
What's not to like about that
High US employment in history, what is this nitwit talking about?
In today’s emerging high tech, highly automated manufacturing environment, skills and productivity are the key and wages, while important, are not the main barrier
And the emergence of fracking has started a revival of American manufacturing independent of any other influence due to reasonable energy costs and the conversion of petrochemical feed stocks from oil based naphtha to low cost natural gas for plastics, pharmaceuticals, fertilizers and other petrochemical based products
This is especially important because the generation of automation is going to be a game changer.
It is vital that as much of the capitol investment in these next generation manufacturing systems take place in the US because whoever controls this technology base will control the future of manufacturing for the 21 st Century
The drain on America has gotten to the point where it has become a national security issue because many process critical materials, components and products are no longer made in the US at all and have no domestic supplier
If there were a sudden disruption in imports suppliers a surprising amount of American products would lack critical raw materials or components and rebuilding US production base could take years
Furthermore, the supply chain logistics of some of the Asian, especially Chinese, products is the stuff of nightmares and constitutes a serious enough risk that supply chain disruptions could put many highly exposed companies at serious risk in the event of disruption.
That's funny! So the author is implying that thousands of people jumping the border every week is not increasing demand for goods and services?
The author gets this part right. Blue-collar jobs won't "magically" appear. Fewer are willing to do physical work, our educational system sucks, our representatives are mostly lawyers, mega-corporations have a monopoly, and people are divided.
I don't believe we will ever see the kind of economy we had in the last century. And maybe that goal shouldn't be our goal. Maybe we need to use our creativeness and innovation, something we still possess, to carve out a new kind of economy based on an independent lifestyle, where a man's labor is his own, where technology allows for greater independence from government, utilities, bankers, big box corporations, and etc.
Trump's heart is in the right place. His methods (agreeably limited) suck. And perhaps his advisors as well, as he's picked some real losers. That said, he is our chance, maybe our only chance, to steer a new and better course toward prosperity. JMHO.
Thanks for posting a piece that gets us to examining where we're at and where we're headed. Maybe we can't fix stupid, but we can certainly do something about ignorance.
It would be better if the factories came here. But Vietnam etc. would be second choice.
The bottom line is, do we want to be dependent on China for our infrastructure, and national security?
President Trump and other mercantilists...
What mindless garbage.
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